Sunday, April 06, 2008

Dispatches From Tax Hell

Earlier in the year we highlighted a dedicated tax blog called HMRC Is Shite. It's now been joined by tax-hell.co.uk, written by someone else outraged by the way HMRC treats us taxpayers.

Nick Morgan has had dire personal experience of a lengthy HMRC probe into his business expenses. He's lucky still to be alive, because as we all know, medieval witch hunts and HMRC probes always start from the assumption that you're guilty until you drown (see here for HMRC's ten sneakiest tricks).

When an investigation is opened the taxpayer should be formally cautioned - at the moment they are sent a letter telling them an investigation has started, but not to worry.

The taxpayer must be assumed innocent until proven guilty, so the onus is on HMRC to provide evidence. At the moment the reverse is true.

All interviews should be taped and then a transcript of that tape should be signed - these then form an objective record - not subjective notes as is the current practice.

Findings must be evidence based.

The final 'sentence' i.e. interest, penalties and extra tax to be paid (if any) should be determined by an independent body - at the moment it is decided by the investigating officer.

Investigative officers should not receive bonuses for successful cases for exactly the same reasons that police officers don't receive bonuses for successful convictions.

All of which sound so sensible, we should be demanding to know why they aren't already in place. Why is it we allow our tax-collectors to behave in a way that would be totally unacceptable for the police?

F'rinstance why haven't our MPs been jumping up and down about it? After all, their expenses are incredibly murky so they must be constantly under the HMRC cosh. Mustn't they?

Hmm...

Since this post, I've been trying to nail down whether they do pay tax on all those expense receipts, such as that "Additional Cost of Living Allowance" covering second homes. And you know what? It's really rather difficult to find out.

According to the official HMRC Parliament Notes - produced specifically for MPs etc to help them with their tax returns - unlike salary, expenses do not need to be recorded under "money payments". In effect, that means for everything except certain travel costs (like the free rail tickets for partners), expenses are untaxed.

It's called a dispensation, and the HMRC notes say:

Which is all very sweet of HMRC. Because it means that even when MPs are rrrrinsing the system like Mr and Mrs Expenses, Alan and Ann Keen MPs - who routinely claim £40 grand pa for household expenses with no receipts - the taxman simply lets them to get on with it.

Compare and contrast with Nick Morgan's nightmarish battle, or the BOM reader who was relentlessly pursued for months by HMRC investigating a £3 charge on a hotel expense receipt for watching a Tom Hanks movie (he eventually agreed to pay the £3).

So, just to hammer the point home, whereas in HMRC's eyes you and I are guilty until we somehow prove ourselves innocent, and will be made to sweat accordingly, Honorable Members can rest easy in their tax-free John Lewis beds, safe under a fleecy blanket of don't-ask-don't-tell.

You'd almost think HMRC wanted to keep them sweet.

PS Tyler has always been scrupulously honest with the taxman. Not because of his spotless morals, but because he once had a close-up view of some work colleagues who were being pursued by the Inland Revenue. They'd entered into a somewhat ill-advised tax arrangement, and while it was thought to be within the letter of the law, HM Inspector was not convinced. At which point, Tyler's colleagues folded and offered to pay everything. But the Inland Rev said no, we've been after a test case, and you're it. There followed 12 nightmarish months while each of the colleagues lost many pounds both in cash and weight. Eventually they were released (albeit with an eye-watering bill) but it certainly concentrated minds for miles around.

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